Britain’s gross domestic product (GDP) fell by 0.6 per cent in October, fuelling anxieties that the economy could remain in recession in the fourth quarter, according to an initial estimate from the National Institute of Economic and Social Research (NIESR).

The institute's estimate for past month contributes to an overall 0.4 per cent decline in output in the three months until the end of October, the same level as in the three months to the end of September.

After the surprise 0.4 per cent decline in third quarter GDP, which measures there period between July and September, economists had been confident that Britain would return to growth in the fourth quarter, after six consecutive quarterly declines. However, there are growing concerns that Britain may have to wait until the first quarter of next year to leave the recession and today’s NIESR figures will do little to remove those doubts.

David Buik, of BGC Partners, said: “We’re getting a very strong message from Mervyn King [the Bank of England Governor] that the British economy still faces very deep problems. This week he has announced another huge banking bailout and increased quantitative easing by £25 billion. It is possible that we may grow this quarter, but if we do, it won’t be by more than 0.2 per cent."

Earlier today, the Bank of England increased its money-printing scheme to £200 billion in an effort to kick-start the British economy which is now languishing in the longest recession since records began in 1955.

Although NIESR’s output figures can bounce about quite dramatically from month to month, the fact that the three-month rolling average remained flat in October, means that the economy will need a significant rebound in November and December if it is to return to growth in the fourth quarter.

However, NIESR said that it still expected the British economy to grow by 0.5 per cent in the fourth quarter, despite the declines recorded in October.

Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, agrees with NIESR. He said: “We see the fourth quarter as being positive, mainly down to the proposed VAT increases, which will prompt people to make large purchases before they come in.”

In January, the Government will restore the VAT rate from 15 per cent to its previous level of 17.5 per cent.

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